Day Trading Vs Swing Trading Vs Position Trading – Which One is Best?

Day Trading Vs Swing Trading Vs Position Trading

One of the hottest debated topics in trading is whether it is better to trade short-term such as day trading or trade long term such as position trade. Traders in both categories have claimed that their style makes the most money and normally put several convincing arguments for why this is so. So what is the truth? Are you more likely to be richer day trading or position trading? Is it better to be in and out of the markets like a nimble sprinter or to be in a trade and stick with for a longer move like a marathon runner? Let’s dive into this topic to see if we find a resolution.

Day Trading Vs Swing Trading Vs Position Trading

Day Trading

Well, firstly what is the difference between the various styles? Day trading means opening and closing positions during the same day. The advantage of day trading is that you don’t hold any positions overnight and don’t have to worry about how your trade is performing during your sleep. Also, you know where you stand at the end of each day – whether you have made a profit or a loss or are at break even. The disadvantage of day trading is that you have to look for a trade every day which can be daunting, and secondly, closing your trades at the end of each day could mean you miss out on some big moves which could have compounded your profits if you had left your positions to run. Of course, the opposite can also be true – in the hope of letting your profits run, price could turn around against you resulting in you giving back all your profits on the trade which you would have realized if you closed your trade at the end of the day.

Swing Trading

Day Trading Vs Swing Trading Vs Position Trading

Swing trading refers to when a trader attempts to catch swings in price movement with the aim of capturing a large portion of the new move. This is more strategic in execution but requires a lot of experience in order to assess how far a potential move is likely to go. Swing traders normally look at their charts every day with the intention of looking for an opportunity that could develop into a major move over the next few days. Once they identify such an opportunity then they will trade it and manage it over the course of a few days to a week or so. The advantage of the swing trading approach is that you don’t have to be in a position every day in order to make money and also one good trade could give a high reward to risk ratio resulting in a lot of money being made from one trading decision. The disadvantage of Swing trading is this approach is that it involves predicting where price is likely to go which is an art rather than a science and also you have to give price a lot of room to breathe which means being forced to watch your profits and loss on a trade go up and down over the length of time you stay in the trade – this is not easy to do as it will be very tempting to close your trade for a profit as soon as you see price retracing against you!

Position Trading (End of Day)

Day Trading Vs Swing Trading Vs Position Trading

The third way of trading is position trading which is also referred to as End of day trading – this is particularly suited to people who cannot access their computers during the day and can only do so early morning or late at night after work. Such traders will look for setups on the daily chart and therefore have to wait for the day to end before making a trading decision to buy or sell. Although this works well for people who are working, the main disadvantage is that on the whole, it produces the least opportunities which means the returns with this style may not be as high as with swing or day trading. The advantage, however, is that the daily chart is generally cleaner to read than lower time frame charts and so should yield more reliable setups even if they are not as frequent as the other two styles. Trading end of day generally also requires a larger account as you will typically be using wider stop losses. It can also be argued that since financial markets are heavily manipulated by the large banks and institutions, trading the end of day chart should shield a trader from most of the manipulation that takes place on an intraday timeframe. The main drawback, however, is that if a trader is experienced enough to read the intraday chart and identify manipulation areas correctly then his returns will be higher than someone who can only trade end of day.

Which Trading style for which market?

Having discussed the various styles of trading, we need to look at which style is best for which type of market – which is best for Forex Trading? Which one is better for Stocks Trading? The answer to this is the same for each market. There are successful day traders who trade Forex and stocks, and there are others who swing trade and end of day trade both markets. The key thing is that whether it is Forex or Stocks, they are both just markets and so a good setup on one market is a good setup on the other. There are some differences between both markets, for example in Forex you need to be much more aware of market manipulation than in stocks, and some stocks might not be as liquid as others which means you may struggle to fill a large position if trading a very small timeframe on a stock. In Forex this is not a problem as you can take large positions even if you trade a very small timeframe.

It’s All a Matter of Personality

The ultimate test of which style is best is dependent on the personality of the trader. If you are the type of person who likes to finish each day with the peace of mind that you have no open positions then day trading is better for you. However, you must also be someone who enjoys being in front of the screen for long periods of time each day with strong discipline and the patience to wait until the right setup occurs and the ability to be decisive and take the trade. It also means you have to ignore your thoughts and feelings from the day before and focus purely on the day at hand.

On the other hand, if you are the type of person who only wants to be on the screen at key moments and likes the idea of trading strategically then swing trading could be better. The key thing here is that you do your market scan and identify opportunities in advance and wait for them to occur which entails needing to be available to trade even if you’re not in front of the screen. You have to be comfortable with being in a trade for a few days or weeks and not get affected by the daily profit and loss adjustments.

The end of day trader is normally someone who likes to take their time when doing their analysis and not someone who enjoys being in front of their screens during the day. They have to be comfortable with the idea that sometimes they will go through a long period of time without any good opportunities. This can be frustrating especially for those who want to be more active in the markets. On the whole, end of day trading yields the lowest number of opportunities hence traders who apply this style will need to broaden a number of markets they trade in order to get sufficient opportunities.

A Combined Approach

Who says the above trading styles are mutually exclusive? They can be combined effectively so that for example you look for a setup on a daily chart – an end of day opportunity but decide to execute on a lower timeframe to turn it into a swing trade – this is perfectly possible and done by a lot of experienced traders. The other approach is to take a trade on an end of day setup and if you get an intraday setup at a later date then take another trade (once the end of day trade is in profit). This is also called pyramiding into a trade i.e. adding to your winning positions at key points on the expectation that it will continue in the direction of the end of day setup. A day trader can use the fact that the end of day setup has triggered and is in profit to help determine his bias for the day and look for trading opportunities in the direction of that bias. We need to note that a setup on a higher timeframe will always be stronger than one on a lower timeframe, so a setup on a daily chart is stronger than one on an intraday chart. This is especially true when trading stocks which is why we only look at end of day setups on our trade alert service but identify intraday entries to get into the positions.

So, which is best? Day Trading, Swing Trading or Position Trading

The conclusion of this articles is to say let’s be aware of the different styles of trading and see which one best suits you. As you will find out along your trading journey, there are many ways of trading, but the one which works best is the one that works in line with the market and with your personality. If you want to just trade Forex I would suggest you day trade and swing trade and this is what our bank manipulation course covers. If you want to just trade stocks then I would suggest sticking to end of day due to the abundance of opportunities that present themselves. Ultimately it is about trying the different styles and sticking to one and it’s not uncommon to begin life as one style of trader and end up as another type later on. Whichever style you trade, we wish you a happy and profitable trading career!